The Mont Pelerin Society was founded 75 years ago. The title of this post was the opening sentence of the Statement of Aims the new Society agreed upon. They had many concerns about what they considered “central values,” but primary among those concerns were the dangers related to market economies: “a decline of belief in private property and the competitive market” and “the growth of theories which question the desirability of the rule of law.”
How has the world done since 1947? It’s easy to point to the decline of communism and socialism, both in practice and as a dominant theory, as a victory for the goals of the Mont Pelerin Society. However, we might be concerned that in the non-communist world, economic freedom has declined even as communism has failed. Let’s dig a little deeper.
One source we can use is an extension of the Fraser Institute’s Economic Freedom of the World index. The primary index only extends back to 1970, but recently Lawson and Murphy have constructed a version of the index which goes all the way back to 1950 for some countries. As far as I’m aware, they haven’t yet perfectly mapped the pre-1970 index with the primary index that extends to the present, but I’ll make a quick comparison using the available data. The 1950 data brings us very close to the date of the first MPS meeting.
Here’s a list of countries relevant to the discussion at MPS in 1947. The list includes countries where attendees came from, as well as other countries of interest to the discussion, such as China and Russia (I’m using the list from Caldwell’s recent edited transcripts of the 1947 meeting). Caveat: this isn’t a chain-linked index, so the 1950 and 2020 numbers are perfectly comparable. Also, the 2020 number only includes Areas 1-4 of the index, since that’s what the pre-1970 data contains.
The table above should give us some optimism about the state of market economies in the world from the perspective of 1947. Not only have China and Russia, clearly improved their economic freedom scores, but all of the Western market economies have as well. Again, exercise caution in interpreting these, since it’s not a chain-linked index, and it excludes one area of economic freedom (regulation, which surely has grown substantially since 1947). Despite those cautions, the picture in 2020 looks pretty good compared with 1950.
But what of other liberal institutions? While the MPS statement of aims doesn’t specifically mention democratic institutions, the threat to democracy seems to clearly be a concern in 1947 (“extensions of arbitrary power” and “freedom of thought and expression”).
How has democracy fared since 1947? We can use a chart from Our World in Data to explore this question. The chart uses data from a variety of sources, chief among them the Varieties of Democracy dataset (also used for the 1950-1965 Fraser Economic Freedom data).
According to this data, in 1947 just 15% of the world’s population lived in democracies, and only 6% lived in what they consider to be “liberal democracies.” Seventy years late in 2017, the picture had changed dramatically, with over 50% of the world living in democracies, and almost 15% in liberal democracies. The absolute number of people living in liberal democracies rose by almost 1 billion people, and in total there are about 3.5 billion more people living in democracies. That still leaves a lot of the world living in non-democracies, or in democracies that aren’t fully “liberal,” but the picture is much improved since the first MPS meeting in 1947.
One thing you will notice in the chart above is that in the past few years, the number of people living in democracies has declined in a very worrying way. From a peak of about 52% of the world’s population living in democracies of some variety, by 2021 that had declined to only about 29%. That’s a big decline in just 4-5 years.
Observers of the democratic scene have indeed taken notice of this. Freedom House also tracks and measures democracy around the world on an annual basis, and they have also recorded a major decline in democracy in many nations in recent years. Hungary and Poland are the countries with the biggest declines, but by no means the only ones. And while the COVID-19 pandemic and governments’ reaction to it hasn’t help the issue, it preceded the pandemic by several years. Notice that it was in 2019 that the Our World in Data chart shows the bid decline, not in 2020.
The recent declines in political freedom, as well as economic freedom, should give us pause about the state of the world today. But over the past 75 years, the central values of civilization have had a pretty good run, especially compared with the first half of the 20th century. While none of the founders of MPS are alive today, I would hope that looking backwards they would see the past 75 years as a great success for the liberal project around the world, not only terms of liberal institutions but also in terms of outcomes from liberal societies.
To take just one example, today North Korea is one of the last bastions of communism and pure totalitarianism. And no doubt you’ve seen the satellite pictures showing the divergence between North and South Korea. But from the perspective of 1947, the success of South Korea would have been hard to predict by even the most optimistic observers. South Korea has not only far eclipsed North Korea, they have completely closed the gap in per capita income with the UK. South Korea today is 3-4x as prosperous as places like the UK and Switzerland were in 1947. The growth there is an amazing success story, the result of embracing the market economy and later liberal institutions more broadly.
While I didn’t include South Korea in the table above, their economic freedom score was 4.2 in 1950 according to Lawson and Murphy. That places them much closer to China and Russia than to the US or Switzerland in 1950. Their score today of 7.42 would have ranked them close to the top of the world ranking in 1950. Today it places them solidly in the second quartile of countries, once again showing just how much economic freedom in the world has improved since 1947.